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The Financial Crisis and the Policy Responses

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Professor John Taylor emphasizes the failure of monetary policy in the early 2000s, that created the conditions of the financial crisis:

"In this paper I have provided empirical evidence that government actions and interventions aused, prolonged, and worsened the financial crisis. They caused it by deviating from historical recedents and principles for setting interest rates, which had worked well for 20 years. They rolonged it by misdiagnosing the problems in the bank credit markets and thereby responding nappropriately by focusing on liquidity rather than risk. They made it worse by providing support for certain financial institutions and their creditors but not others in an ad hoc way ithout a clear and understandable framework. While other factors were certainly at play, these overnment actions should be first on the list of answers to the question of what went wrong."

You can read his article here.

 

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